What changed in this filing

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Item 1. Financial Statements

2021-05-11 compared with 2020-11-05 · 149 added, 177 removed, 300 unchanged (52% of the section changed)

2 unchanged sentences

(in thousands, except share and per share data)

September 30,

Current assets:

4 unchanged sentences

Property and equipment, net

LIABILITIES, CONVERTIBLE PREFERRED STOCK & STOCKHOLDERS’

EQUITY (DEFICIT)

Right of use assets - operating leases

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

1 unchanged sentence

Accrued expenses and other current liabilities

Operating lease liability, current

Total current liabilities

Deferred rent

Operating lease liability, non-current

Total liabilities

Commitments and contingencies (Note 7)

Convertible preferred stock, $0.001 par value per share;

no shares authorized, issued

or outstanding as of September 30, 2020;

70,378,661 shares authorized and 60,533,313

shares issued and outstanding as of December 31, 2019

Stockholders’ equity (deficit):

Preferred stock, $0.001 par value per share;

10,000,000 shares authorized;

issued or outstanding as of September 30, 2020;

issued or outstanding as of March 31, 2021;

no shares authorized, issued or

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Common stock, $0.001 par value per share;

200,000,000 and 100,000,000 shares

authorized as of September 30, 2020 and December 31, 2019, respectively;

and 702,510 shares issued and outstanding as of September 30, 2020 and December 31,

200,000,000 shares

authorized as of March 31, 2021 and December 31, 2020;

and 17,548,263 shares issued and outstanding as of March 31, 2021 and December 31,

2020, respectively

2 unchanged sentences

Accumulated deficit

Total stockholders’ equity (deficit)

Total liabilities, convertible preferred stock and stockholders’ equity (deficit)

Total stockholders’ equity

Total liabilities and stockholders’ equity

The accompanying notes are an integral part of these condensed consolidated financial statements.

2 unchanged sentences

Three Months Ended

September 30,

Nine Months Ended

September 30,

Operating expenses:

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Weighted-average common shares outstanding—basic and diluted

Net loss per share attributable to common stockholders—basic and

Net loss per share attributable to common stockholders—basic and diluted

Comprehensive loss:

Other comprehensive income:

Unrealized gain (loss) on investments (net)

Other comprehensive loss:

Unrealized loss on investments

Comprehensive loss

10 unchanged sentences

preferred stock, net of issuance

costs of $274

Stock-based compensation

Balance at March 31, 2019

Issuance of Series B convertible

preferred stock, net of issuance

Stock-based compensation

Balance at June 30, 2019

Stock-based compensation

Unrealized gain on

Balance at September 30, 2019

CONVERTIBLE PREFERRED STOCK

SERIES B $0.001

COMPREHENSIVE

STOCKHOLDERS’

INCOME (LOSS)

Balance at December 31, 2019

Issuance of Series B

convertible preferred

stock, net of issuance

costs of $20 and beneficial

7 unchanged sentences

commissions and offering

costs of $3,885

Stock-based compensation

1 unchanged sentence

Balance at March 31, 2020

Initial public offering, net of

underwriting discounts,

commissions and offering

Exercise of stock options

COMPREHENSIVE

STOCKHOLDERS’

INCOME (LOSS)

Balance at December 31, 2020

Stock-based compensation

Unrealized gain on

Balance at June 30, 2020

Exercise of stock options

Stock-based compensation

Unrealized loss on

Balance at September 30, 2020

Balance at March 31, 2021

The accompanying notes are an integral part of these condensed consolidated financial statements.

1 unchanged sentence

(in thousands)

Nine Months Ended

September 30,

Three Months Ended

Cash flows from operating activities:

8 unchanged sentences

Deferred rent

Operating lease assets and liabilities, net

Net cash used in operating activities

3 unchanged sentences

Purchases of property and equipment

Net cash used in investing activities

Net cash provided by investing activities

Cash flows from financing activities:

Proceeds from issuance of Series B convertible preferred stock, net of issuance costs

Proceeds from initial public offering, net of underwriting discounts and commissions

Proceeds from initial public offering, net of underwriting discounts, commissions and offering costs

Proceeds from the exercise of stock options

Payment of issuance costs

Proceeds from exercise of options

Net cash provided by financing activities

8 unchanged sentences

Property and equipment purchases included in accrued expenses

Unrealized gain (loss) on investments

Unrealized loss on investments

The following table provides a reconciliation of the cash, cash equivalents, and restricted cash balances as of each of the periods shown above:

Nine Months Ended

September 30,

Three Months Ended

Cash and cash equivalents

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Nature of the Business

(“IMARA” or the “Company”) is a clinical-stage biopharmaceutical company dedicated to developing and commercializing novel therapeutics to treat patients suffering from rare inherited genetic disorders of hemoglobin, known as hemoglobinopathies, which have significant unmet medical need.

(“IMARA” or the “Company”) is a clinical-stage biopharmaceutical company dedicated to developing and commercializing novel therapeutics to treat rare inherited genetic disorders of hemoglobin, known as hemoglobinopathies, which have significant unmet medical need.

The Company was incorporated in January 2016 under the laws of the State of Delaware, and its principal offices are in Boston, Massachusetts.

The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including but not limited to, risks associated with completing preclinical studies and clinical trials, receiving regulatory approvals for product candidates, development by competitors of new biopharmaceutical products, dependence on key personnel, protection of proprietary technology, compliance with government regulations and the ability to secure additional capital to fund operations.

Such risks and uncertainties may be amplified by the COVID-19 pandemic and its impact on the Company’s business and the global economy.

The Company’s sole product candidate currently under development, IMR-687, as well as any other product candidates the Company may develop, will require significant additional research and development efforts, including preclinical and clinical testing and regulatory approval, prior to commercialization.

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On March 16, 2020, the Company completed an initial public offering (“IPO”) of its common stock and issued and sold 4,700,000 shares of common stock at a public offering price of $16.00 per share, resulting in gross proceeds of $75.2 million.

On April 13, 2020, the Company issued and sold an additional 705,000 shares of common stock pursuant to the exercise of the underwriters’ option to purchase additional shares for aggregate gross proceeds of $11.3 million.

Inclusive of the exercise by the underwriters of their option to purchase additional shares, the Company received approximately $76.5 million in net proceeds from the IPO after deducting $10.0 million of underwriting discounts and commissions and offering expenses.

On April 13, 2020, the Company issued and sold an additional 705,000 shares of common stock pursuant to the exercise of the underwriters’ over-allotment option for aggregate gross proceeds of $11.3 million.

Inclusive of the over-allotment exercise, the Company received approximately $76.5 million in net proceeds from the IPO after deducting $10.0 million of underwriting discounts and commissions and offering expenses.

Upon the closing of the IPO, all 70,378,661 shares of outstanding preferred stock automatically converted into 11,172,955 shares of common stock.

Upon conversion of the convertible preferred stock, the Company reclassified the carrying value of the convertible preferred stock to common stock and additional paid-in capital.

On April 1, 2021, the Company filed a Registration Statement on Form S-3 (the “Shelf”) with the SEC in relation to the registration and potential future issuance of common stock, preferred stock, debt securities, warrants and/or units of any combination thereof in the aggregate amount of up to $200.0 million.

The Shelf was declared effective on April 8, 2021.

The Company also simultaneously entered into a sales agreement with Cantor Fitzgerald & Co , LLC, as sales agent, providing for the offering, issuance and sale by the Company of up to an aggregate $75.0 million of its common stock from time to time in “at-the-market” offerings under the Shelf.

The Company has incurred recurring negative cash flows since inception and has funded its operations primarily from the sale of convertible preferred stock and proceeds from the IPO.

As of September 30, 2020, the Company had cash, cash equivalents, and investments of $96.1 million and an accumulated deficit of approximately $84.6 million.

As of March 31, 2021, the Company had cash, cash equivalents, and investments of $75.6 million and an accumulated deficit of approximately $106.4 million.

The Company expects its operating losses and negative operating cash flows to continue into the foreseeable future as it continues to expand its research and development efforts.

The Company believes its cash, cash equivalents and investments as of September 30, 2020 will be sufficient to fund its operating expenses and capital expenditure requirements for at least twelve months from the date of filing this Quarterly Report on Form 10-Q.

The Company believes its cash, cash equivalents and investments as of March 31, 2021 will be sufficient to fund its operating expenses and capital expenditure requirements for at least twelve months from the date of filing this Quarterly Report on Form 10-Q.

The Company will need additional funding to support its planned operating activities.

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GAAP have been condensed or omitted from this report, as is permitted by such rules and regulations.

Accordingly, these financial statements should be read in conjunction with the audited financial statements as of and for the year ended December 31, 2019 and notes thereto, included in the Company’s Registration Statement on Form S-1/A, filed with the Securities Exchange Commission (“SEC”) on March 10, 2020.

The unaudited condensed consolidated interim financial statements have been prepared on the same basis as the audited financial statements.

In the opinion of the Company’s management, the accompanying unaudited condensed consolidated interim financial statements contain all adjustments which are necessary to present fairly the Company’s financial position as of September 30, 2020, the results of its operations for the three and nine months ended September 30, 2020 and 2019 and cash flows for the nine months ended September 30, 2020 and 2019.

Accordingly, these financial statements should be read in conjunction with the audited financial statements as of and for the year ended December 31, 2020 and notes thereto, included in the Company’s Annual Report on Form 10-K (the “Annual Report”), filed with the SEC on March 5, 2021.

The unaudited condensed consolidated interim financial statements have been prepared on the same basis as the audited financial statements, with the exception of the modified retrospective adoption of ASC 842 Leases.

In the opinion of the Company’s management, the accompanying unaudited condensed consolidated interim financial statements contain all adjustments which are necessary to present fairly the Company’s financial position as of March 31, 2021, the results of its operations for the three months ended March 31, 2021 and 2020 and cash flows for the three months ended March 31, 2021 and 2020.

Such adjustments are of a normal and recurring nature.

The results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results for the year ending December 31, 2020, or for any future period.

The results for the three months ended March 31, 2021 are not necessarily indicative of the results for the year ending December 31, 2021, or for any future period.

Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements of the Company include the accounts of its wholly owned subsidiaries, IMARA Security Corporation and IMARA E.U.

The accompanying condensed consolidated financial statements of the Company include the accounts of its wholly owned subsidiaries, IMARA Security Corporation and IMARA E.U.

All intercompany transactions and balances have been eliminated in consolidation.

Summary of Significant Accounting Policies

The significant accounting policies and estimates used in the preparation of the accompanying unaudited condensed consolidated financial statements are described in the Company’s audited consolidated financial statements for the year ended December 31, 2019 included in the Company’s Registration Statement on Form S-1/A filed with the SEC on March 10, 2020.

There have been no material changes in the Company’s significant accounting policies during the three and nine months ended September 30, 2020.

There have been no material changes in the Company’s significant accounting policies during the three months ended March 31, 2021, with the exception of the modified retrospective adoption of ASC 842 Leases.

Use of Estimates

The preparation of unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of expenses during the reporting periods.

Significant estimates and assumptions reflected in these unaudited condensed consolidated financial statements include, but are not limited to, accrued research and development expenses, stock-based compensation expense, the fair value of the common stock and the intrinsic value of the beneficial conversation feature present in the second tranche of the Series B Preferred Stock issued in February of 2020.

Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, accrued research and development expenses, stock-based compensation expense, the fair value of the common stock and the intrinsic value of the beneficial conversation feature present in the second tranche of the Series B Preferred Stock issued in February of 2020.

Actual results could differ materially from those estimates.

In February 2016, the FASB issued ASU No.

2016-02, Leases (Topic 842) (“ASU 2016-02”).

This standard established a right-of-use model that requires all lessees to recognize right-of-use assets and lease liabilities on their balance sheet that arise from leases as well as provide disclosures with respect to certain qualitative and quantitative information related to a company’s leasing arrangements to meet the objective of allowing users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases.

The FASB subsequently issued the following amendments to ASU 2016-02 that have the same effective date and transition date:

2018-01, Leases (Topic 842):

Land Easement Practical Expedient for Transition to Topic 842, ASU No.

2018-10, Codification Improvements to Topic 842, Leases, ASU No.

2018-11, Leases (Topic 842):

Targeted Improvements, ASU No.

2018-20, Narrow-Scope Improvement for Lessors, and ASU No.

2019-01, Leases (Topic 842):

Codification Improvements.

The Company early adopted these amendments with ASU 2016-02 (collectively, the “new leasing standards”), effective January 1, 2021.

The Company adopted the new leasing standards using the modified retrospective transition approach, with no restatement of prior periods and there was no cumulative adjustment to retained earnings.

Upon adoption, the Company elected the package of transition practical expedients, which allowed the Company to not reassess the following:

(i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases and (iii) the treatment of initial direct costs for existing leases.

The Company made an accounting policy election to not recognize short-term leases with an initial term of twelve months or less within its consolidated balance sheets and to recognize those lease payments on a straight-line basis in its consolidated statements of operations over the lease term.

Upon adopting the new leasing standards, the Company recognized an operating lease right-of-use asset of $ 0.7 million and a corresponding current and non-current operating lease liability of $ 0.3 million and $ 0.6 million, respectively, which are included in its consolidated balance sheets.

The adoption of the new leasing standards did not have a material impact on the Company’s consolidated statements of operations.

The Company determines if an arrangement is a lease at contract inception.

Operating lease right-of-use assets represent the Company’s right to use an underlying asset for the lease term and operating lease liabilities represent its obligation to make lease payments arising from the lease.

Operating right-of-use assets and liabilities are recognized at the commencement date of the lease based upon the present value of lease payments over the lease term.

When determining the lease term, the Company includes options to extend or terminate the lease when it is reasonably certain that the option will be exercised.

The Company uses the implicit rate when readily determinable and uses its incremental borrowing rate when the implicit rate is not readily determinable, based upon the information available at the commencement date in determining the present value of the lease payments.

The incremental borrowing rate is determined using a secured borrowing rate for the same currency and term as the associated lease.

The lease payments used to determine operating lease right-of-use assets may include lease incentives and stated rent increases.

The Company’s lease agreements may include both lease and non-lease components, which the Company accounts for as a single lease component when the payments are fixed, for all classes of underlying assets.

Variable payments included in the lease agreement are expensed as incurred.

The Company’s operating leases are reflected in operating lease right-of-use assets and in current operating lease liabilities and long-term operating lease liabilities in its consolidated balance sheets.

The Company’s operating lease right-of-use asset as of March 31, 2021 did not include any material lease incentives.

Lease expense for future lease payments is recognized on a straight-line basis over the lease term.

Prior to the adoption of the new leasing standards, the Company recognized lease costs on a straight-line basis once it gained control of the space, without regard to deferred payment terms, such as rent holidays, that would defer the commencement date of required payments or escalating payment amounts.

Any lease incentives received were treated as a reduction of costs over the term of the lease agreement, as they were considered an inseparable part of the lease agreement.

The difference between required lease payments and rent expense was recorded as deferred rent, which was reflected as deferred rent in the December 31, 2020 consolidated balance sheet.

Operating segments are defined as components of an enterprise for which separate and discrete information is available for evaluation by the chief operating decision-maker in deciding how to allocate resources and assess performance.

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Should the equity issuance be abandoned, the deferred offering costs will be expensed immediately as a charge to operating expenses in the unaudited condensed consolidated statement of operations and comprehensive loss.

Deferred offering costs classified in other assets on the accompanying unaudited condensed consolidated balance sheet as of March 31, 2021 were $0.2 million.

There were no deferred offering costs as of December 31, 2020.

Comprehensive Loss

Comprehensive loss includes net loss and certain changes in stockholders’ equity (deficit) that are excluded from net loss.

The Company’s comprehensive loss includes unrealized gains and unrealized losses on available-for-sale securities for the three and nine months ended September 30, 2020 and 2019.

Comprehensive loss includes net loss and certain changes in stockholders’ equity that are excluded from net loss.

The Company’s comprehensive loss includes unrealized losses on available-for-sale securities for the three months ended March 31, 2021 and 2020.

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02 , Leases (Topic 842) (“ASU 2016-02”), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors).

In February 2016, the FASB issued ASU 2016-02 , Leases (Topic 842) , which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors).

The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee.

3 unchanged sentences

ASU 2016-02 supersedes the previous leases standard, ASC 840, Leases .

This standard will become effective for the Company for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022.

Early adoption is permitted.

The Company anticipates that the adoption of this standard will have an impact on its balance sheet due to the recognition of right-of-use assets and lease liabilities;

however, the Company is currently evaluating the impact that the adoption of ASU 2016-02 will have on its consolidated financial statements.

For additional information on the adoption of the new leasing standards, please read the Company’s policy above entitled Leases, and Note 7, Commitments and Contingencies, to these consolidated financial statements.

In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815) I.

3 unchanged sentences

Part II replaces the indefinite deferral for certain mandatorily redeemable noncontrolling interests and mandatorily redeemable financial instruments of nonpublic entities contained within ASC Topic 480 with a scope exception and does not impact the accounting for these mandatorily redeemable instruments.

The amendments in Part I of this update are effective for the Company for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020.

For public entities, the amendments in Part I of this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.

For all other entities, the amendments in Part I of this update are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020.

Early adoption is permitted for all entities, including adoption in an interim period.

The Company is currently evaluating the impact that the adoption of ASU 2017-11 will have on its consolidated financial statements.

In March 2020, the FASB issued (“ASU 2020-03”), Codification Improvements to Financial Instruments, which addressed, among other topics, Amendments related to ASU 2016-13 Financial Instruments—Credit Losses (Topic 326):

The Company adopted this new standard on January 1, 2021, which did not result in any material impact on the Company’s financial statements.

In March 2020, the FASB issued “ASU 2020-03”, Codification Improvements to Financial Instruments, (“ASU 2020-03”) which addressed, among other topics, Amendments related to ASU 2016-13 Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments ("ASU 2016-13”).

The amendments align the contractual term under Topic 326 and Topic 842 (Leases) to be consistent, and also clarifies when an entity should record an allowance for credit losses in accordance with Topic 326.

This standard becomes for the Company for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

For public business entities that meet the definition of a SEC filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, the standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years.

For all other entities, the standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

Early adoption is permitted.

The Company is currently evaluating the impact of this new guidance on the Company’s consolidated financial statements and related disclosures, but does not expect the adoption of ASU 2020-03 or ASU 2016-13 to be material.

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The following table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicates the level of the fair value hierarchy utilized to determine such fair values (in thousands):

September 30, 2020

March 31, 2021

Quoted Prices in

5 unchanged sentences

Marketable securities:

United States Treasury Bills

Corporate debt securities

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Total financial assets

As of September 30, 2020 and December 31, 2019, the Company’s Level 1 financial assets consisted of cash equivalents held in money market funds, which are valued using quoted market prices in active markets without any valuation adjustment , and United States treasury bills, which are based on quoted market prices in active markets.

As of March 31, 2021 and December 31, 2020, the Company’s cash equivalents consisted of money market funds, classified as Level 1 financial assets, as these assets are valued using quoted market prices in active markets without any valuation adjustment.

The financial assets valued based on Level 2 inputs consist of corporate debt securities and commercial paper, which consist of investments in highly-rated investment-grade securities.

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The Company validates the prices provided by its third-party pricing sources by understanding the models used, obtaining market values from other pricing sources and analyzing pricing data in certain instances.

During the three and nine months ended September 30, 2020 and the year ended December 31, 2019, there were no transfers between fair value measurement levels.

During the three months ended March 31, 2021 and the year ended December 31, 2020, there were no transfers between fair value measurement levels.

The carrying values of other current assets, accounts payable and accrued expenses approximate their fair values due to the short-term nature of these assets and liabilities.

As of September 30, 2020, the Company had short-term investments consisting of United States treasury bills, corporate debt securities, and commercial paper, which are considered to be available-for-sale investments.

As of December 31, 2019, the Company had short-term investments consisting of corporate debt securities and commercial paper.

As of March 31, 2021 and December 31, 2020, the Company had short-term investments consisting of corporate debt securities and commercial paper, which are considered to be available-for-sale investments.

These are included in short-term investments on the condensed consolidated balance sheets, even though the stated maturity date may be one year or more beyond the current balance sheet date, as the Company views those securities as available for use in current operations, if needed.

The following table summarizes the Company’s investments (in thousands):

September 30, 2020

March 31, 2021

Amortized Cost

1 unchanged sentence

Gross Unrealized

Corporate debt securities

United States Treasury Bills

Commercial paper

Corporate debt securities

December 31, 2020

4 unchanged sentences

Corporate debt securities

As of September 3 0 , 2020 and December 31, 2019, the Company had no available-for-sale securities in unrealized loss positions.

As of March 31, 2021, the Company had one available-for-sale security of approximately $1.2 million in an unrealized loss position for less than twelve months.

As of December 31, 2020, the Company had no available-for-sale securities in unrealized loss positions.

The Company has the intent and ability to hold such securities until recovery.

The Company determined that there was no material change in the credit risk of these investments .

As a result, the Company determined it did not hold any investments with an other-than-temporary impairment as of March 31, 2021 and December 31, 2020.

Accrued Expenses

Accrued expenses consisted of the following (in thousands):

September 30,

Accrued research and development expenses

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The Company also agreed to pay tiered royalties based on net sales of all products licensed under the agreement in the low single-digit percentages.

To date, pursuant to the license agreement, the Company has made cash payments to Lundbeck of $1.8 million consisting of an upfront payment and ongoing milestone payments, which were recorded as research and development expenses.

No payments were made during the year ended December 31, 2019, or for the three and nine months ended September 30, 2020.

No payments were made during the year ended December 31, 2020, or for the three months ended March 31, 2021.

As partial consideration for the license, the Company issued 167,523 shares of common stock to Lundbeck, which represented 8.0% of the Company’s then outstanding equity pursuant to a restricted stock agreement.

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Lease Agreements

In 2016, the Company entered into an agreement for office space located in Cambridge, Massachusetts, which was a month-to-month lease, with a related party (see Note 13).

The agreement for this space terminated on August 17, 2019.

The Company recorded rent expense of less than $0.2 million during the three and nine months ended September 30, 2019.

In May 2019, the Company entered into a new operating lease agreement for office space totaling 4,210 square feet, located in Boston, Massachusetts with a 62-month term.

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In addition to the base rent, the Company is also responsible for its share of operating expenses, electricity and real estate taxes, in accordance with the terms of the Lease Agreement.

The Company provided a security deposit of approximately $0.1 million in May 2019, which is included as a component of other assets on the Company’s unaudited condensed consolidated balance sheets as of September 30, 2020 and December 31, 2019.

The Company occupied the space in August 2019 and commenced recognition of rent expense.

The Company recorded rent expense of approximately $0.1 million during the three months ended September 30, 2020, and approximately $0.2 million during the nine months ended September 30, 2020.

The following table summarizes the future minimum lease payments due under the Company’s operating lease (in thousands):

September 30,

The Company recorded rent expense of approximately $0.1 million during the three months ended March 31, 2021.

The following table summarizes the future lease payments due under the Company’s operating lease agreement (in thousands):

Total Lease Payments

Less Imputed Interest

Operating cash flows used for operating leases

Weighted-average remaining lease term (years)

Weighted-average discount rate

Under the prior lease accounting guidance, minimum rental commitments under non-cancelable leases as of December 31, 2020 were as follows (in thousands):

Minimum Lease Payments

Legal Proceedings

The Company may from time to time be party to litigation arising in the ordinary course of business.

The Company was not subject to any material legal proceedings during the three and nine months ended September 30, 2020 and year ended December 31, 2019, and no material legal proceedings are currently pending or, to the best of its knowledge, threatened.

Indemnification Obligations

The Company agrees to standard indemnification obligations as part of entering into agreements in the ordinary course of business.

Pursuant to the indemnification provisions, the Company agrees to indemnify, hold harmless, and to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally the Company’s business partners, in connection with matters specified in the applicable provision, which may include any U.S.

patent or any copyright or other intellectual property infringement claim by any third-party with respect to the Company’s products or product liability claims by any third-party with respect to the Company’s products.

The term of these indemnification obligations is generally perpetual any time after execution of the agreement.

The potential amount of future payments the Company could be required to make under these indemnification obligations is unlimited.

The Company has never incurred costs to defend lawsuits or settle claims related to these indemnification obligations.

The Company was not subject to any material legal proceedings during the three months ended March 31, 2021 and year ended December 31, 2020, and no material legal proceedings are currently pending or, to the best of its knowledge, threatened.

Indemnification Agreements

The Company enters into standard indemnification agreements in the ordinary course of business.

Pursuant to the indemnification agreements, the Company agrees to indemnify, hold harmless, and to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally the Company’s business partners, in connection with any U.S.

patent or any copyright or other intellectual property infringement claim by any third-party with respect to the Company’s products.

The term of these indemnification agreements is generally perpetual any time after execution of the agreement.

The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited.

The Company has never incurred costs to defend lawsuits or settle claims related to these indemnification agreements.

Convertible Preferred Stock

Prior to the sale of common stock in connection with its IPO, the Company had funded its operations primarily with proceeds from the sale of Preferred Stock.

On February 25, 2020, the Company raised $17.1 million in net proceeds from the sale of 1,562,994‬ shares of Series B Preferred Stock, at a price of $10.9722 per share, upon a waiver of specified milestone conditions from the holders of a majority of the shares then held by the holders of Series B Preferred Stock.

Upon issuance, each share of Series B Preferred Stock included an embedded beneficial conversion feature as the estimated fair value of the Company’s common stock on the date of issuance of the Series B Preferred Stock was higher than the effective conversion price of the Series B Preferred Stock of $10.9722 per share.

Given the proximity of the issuance to the Company’s public offering, the Company utilized the $16.00 public offing price of its common stock to determine the intrinsic value of the beneficial conversion feature.

Given the proximity of the issuance to the Company’s public offering, the Company utilized the $16.00 public offering price of its common stock to determine the intrinsic value of the beneficial conversion feature.

As a result, the Company recorded the intrinsic value of the beneficial conversion feature of $7.9 million as a discount on the Series B Preferred Stock at issuance.

1 unchanged sentence

Upon the completion of the IPO on March 16, 2020, all 70,378,661 shares of outstanding preferred stock automatically converted into 11,172,955 shares of common stock.

Prior to the conversion, the holders of the preferred stock were entitled to receive noncumulative dividends of 8% per annum of the Series B issuance price only when and if declared by the Company’s Board of Directors.

No dividends have been declared by the Company’s Board of Directors since inception.

As of December 31, 2019, p referred s tock consisted of the following (in thousands, except share data):

December 31, 2019

Series Seed Preferred Stock

Series A Preferred Stock

Series B Preferred Stock

Prior to the conversion, the holders of the preferred stock were entitled to receive noncumulative dividends of 8 % per annum of the Series B issuance price only when and if declared by the Company’s b oard of d irectors.

No dividends have been declared by the Company’s b oard of d irectors since inception .

Stockholders’ Equity

1 unchanged sentence

Common stockholders are entitled to receive dividends, as may be declared by the Board, if any, subject to the preferential dividend rights of any preferred stock then outstanding.

Through September 30, 2020, no cash dividends have been declared or paid.

As of September 30, 2020, 10,000,000 shares of preferred stock were authorized and no shares of preferred stock were issued or outstanding.

As of September 30, 2020 and December 31, 2019, the Company has reserved for future issuance the following shares of common stock:

September 30,

Conversion of outstanding preferred stock

Shares reserved for future issuance under the 2016 Stock Incentive Plan

Through March 31, 2021, no cash dividends have been declared or paid.

As of March 31, 2021, 10,000,000 shares of preferred stock were authorized and no shares of preferred stock were issued or outstanding.

As of March 31, 2021 and December 31, 2020, the Company has reserved for future issuance the following shares of common stock:

Shares reserved for future issuance under the 2020 Equity Incentive Plan

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2016 Stock Incentive Plan

The Company’s 2016 Stock Incentive Plan, (the “2016 Plan”) provided for the grant of restricted stock, restricted stock units, stock appreciation rights, incentive stock options, non-statutory stock options and other stock-based awards to employees, officers, members of the Board, consultants and advisors of the Company.

As of December 31, 2019, the number of shares of common stock authorized to be issued under the 2016 Plan was 2,091,969, of which 228,852 shares remained available for future grants as of December 31, 2019.

As of the effective date of the 2020 Equity Incentive Plan (the “2020 Plan”), no shares remained available for future issuance under the 2016 Plan.

The Company’s 2016 Stock Incentive Plan, (the “2016 Plan”) provides for the Company to issue restricted stock, restricted stock units, stock appreciation rights, incentive stock options, non-statutory stock options and other stock-based awards to employees, officers, members of the Board, consultants and advisors of the Company.

As of the effective date of the 2020 Equity Incentive Plan (the “2020 Plan”) on March 11, 2020, and as of March 31, 2021, no shares remained available for future issuance under the 2016 Plan.

Any options or awards outstanding under the 2016 Plan remain outstanding and effective.

2020 Equity Incentive Plan

On October 1, 2019, the Company’s board of directors adopted, and on February 26, 2020 the Company’s stockholders approved, the 2020 Equity Incentive Plan (the “2020 Plan”), which became effective on March 11, 2020.

On October 1, 2019, the Company’s board of directors adopted, and on February 26, 2020 the Company’s stockholders approved, the 2020 Plan, which became effective on March 11, 2020.

The 2020 Plan provides for the grant of incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock awards, restricted stock units and other stock-based awards.

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(1) 1,220,283 shares of the Company’s common stock;

plus (2) the number of shares (up to a maximum of 2,091,969 shares) equal to the sum of (x) 228,852 shares, which represents the Company’s common stock reserved for issuance under the 2016 Plan that remained available for grant under the 2016 Plan as of March 11, 2020 and (y) the number of shares of the Company’s common stock subject to outstanding

awards granted under the 2016 Plan that expire, terminate or are otherwise surrendered, cancelled, forfeited or repurchased by the Company at their original issuance price pursuant to a contractual repurchase right .

plus (2) the number of shares (up to a maximum of 2,091,969 shares) equal to the sum of (x) the number of shares of the Company’s common stock reserved for issuance under the 2016 Plan that remained available for grant under the 2016 Plan as of March 11, 2020 and (y) the number of shares of the Company’s common stock subject to outstanding awards granted under the 2016 Plan that expire, terminate or are otherwise surrendered, cancelled, forfeited or repurchased by the Company at their original issuance price pursuant to a contractual repurchase right.

The number of shares reserved shall be annually increased on the first day of each fiscal year, beginning with the fiscal year ending December 31, 2021 and continuing until, and including, the fiscal year ending December 31, 2030, equal to the lesser of (i) 4% of the number of shares of the Company’s common stock outstanding on the first day of such fiscal year and (ii) an amount determined by the Company’s board of directors.

On January 1, 2021, 701,930 additional shares were reserved for issuance under the 2020 Plan pursuant to this provision.

No more than 8,541,982 shares of common stock may be issued as incentive stock options under the 2020 Plan.

The shares of common stock underlying any awards that expire, terminate, or are otherwise surrendered, cancelled, forfeited or repurchased by the Company under the 2016 Plan or the 2020 Plan wil l be added back to the shares of common stock available for issuance under the 2020 Plan

As of September 30, 2020, there were 1,277,645 shares available for future issuance under the 2020 Plan.

For financial reporting purposes, the Company performed common stock valuations with the assistance of a third-party specialist through October 23, 2019 to determine stock-based compensation expense for stock options.

Upon completion of the IPO, the fair value of the common stock on the grant date was based on the closing price of the stock on the Nasdaq Global Select Market on the date of grant.

The shares of common stock underlying any awards that expire, terminate, or are otherwise surrendered, cancelled, forfeited or repurchased by the Company under the 2016 Plan or the 2020 Plan will be added back to the shares of common stock available for issuance under the 2020 Plan.

As of March 31, 2021, there were 1,487,494 shares available for future issuance under the 2020 Plan.

The following table summarizes the Company’s stock option activity:

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Outstanding as of December 31, 2020

Outstanding as of September 30, 2020

Options vested and exercisable as of September 30, 2020

Outstanding as of March 31, 2021

Options vested and exercisable as of March 31, 2021

The aggregate intrinsic value of options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock for those stock options that had exercise prices lower than the fair value of the common stock as of the end of the period.

The weighted-average grant date fair value of the Company’s stock options granted during the three and nine months ended September 30, 2020 was $12.99 and $11.30, respectively.

The weighted-average grant date fair value of the Company’s stock options granted during the nine months ended September 30, 2019 was $3.42.

The Company did not grant any stock options during the three months ended September 30, 2019.

The assumptions that the Company used to determine the grant date fair value of stock options granted to employees, non-employees and members of the Board during the three and nine months ended September 30, 2020 and the nine months ended September 30, 2019 were as follows, presented on a weighted-average basis Stock-based compensation expense was allocated as follows (in thousands):

Three Months Ended

September 30,

Nine Months Ended

September 30,

Expected term (in years)

Expected volatility

Expected dividend yield

Risk-free interest rate

The weighted-average grant date fair value of the Company’s stock options granted during the three months ended March 31, 2021 and 2020 was $9.28 and $10.11, respectively.

Performance-based awards

The Company granted stock options to purchase an aggregate of 220,928 shares of common stock to certain employees, officers and consultants and advisors of the Company on May 16, 2019, June 5, 2019 and June 21, 2019, which contain performance-based vesting criteria.

The Company granted stock options to purchase an aggregate of 220,928 shares of common stock to certain employees, officers, consultants and advisors of the Company on May 16, 2019, June 5, 2019 and June 21, 2019, which contain performance-based vesting criteria.

Vesting of these options was contingent on the closing of the second tranche of Series B Preferred Stock financing.

Stock-based compensation expense associated with performance-based stock options is recognized if the performance conditions are

considered probable of being achieved, using management’s best estimates.

As a result of the performance condition being met on February 25, 2020, these options will vest as to 25% of the share s underlying each option on February 25, 2021 and as to the remainder of the shares in equal quarterly installments for three years thereafter.

The Company recognized stock-based compensation expense of less than $ 0.1 million and $0.2 million for these opt ions during the three and nine months ended September 30 , 2020 , respectively .

Stock-based compensation expense associated with these performance-based stock options is recognized if the performance conditions are considered probable of being achieved, using management’s best estimates.

As a result of the performance condition being met on February 25, 2020, these options vested as to 25% of the shares underlying each option on February 25, 2021 and will vest as to the remainder of the shares in equal quarterly installments for three years thereafter.

The Company recognized stock-based compensation expense of less than $0.1 million for these options during the three months ended March 31, 2021.

Stock-Based Compensation

Stock-based compensation expense included in the Company’s unaudited condensed consolidated statements of operations and comprehensive loss is as follows (in thousands):

Three Months Ended

September 30,

Nine Months Ended

September 30,

Three Months Ended March 31,

Research and development

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Total stock-based compensation expense

As of September 30, 2020 and December 31, 2019, total unrecognized compensation cost related to the unvested stock-based awards was $6.9 million and $3.3 million, respectively, which is expected to be recognized over a weighted-average period of 3.06 and 3.17 years, respectively.

As of March 31, 2021 and December 31, 2020, total unrecognized compensation cost related to the unvested stock-based awards was $11.7 million and $9.5 million, respectively, which is expected to be recognized over a weighted-average period of 3.23 and 3.22 years, respectively.

2020 Employee Stock Purchase Plan

On October 1, 2019, the Company’s board of directors adopted, and on February 26, 2020, the Company’s stockholders approved the 2020 Employee Stock Purchase Plan (the “2020 ESPP”), which became effective on March 11, 2020.

On October 1, 2019, the Company’s board of directors adopted, and on February 26, 2020, the Company’s stockholders approved a 2020 Employee Stock Purchase Plan (the “2020 ESPP”), which became effective on March 11, 2020.

The 2020 ESPP initially provides participating employees with the opportunity to purchase up to an aggregate of 193,216 shares of the Company’s common stock.

The number of shares of the Company’s common stock reserved for issuance under the 2020 ESPP will automatically increase on the first day of each fiscal year, beginning with the fiscal year commencing on January 1, 2021 and continuing until, and including, the fiscal year commencing on January 1, 2031, in an amount equal to the lowest of (i) 386,432 shares of the Company’s common stock, (ii) 1% of the number of shares of the Company’s common stock outstanding on the first day of such fiscal year and (iii) an amount determined by the Company’s board of directors.

In 2021, the Company’s compensation committee elected not to increase the number of shares of the Company’s common stock reserved for issuance under the 2020 ESPP pursuant to this provision.

Deferred tax assets and deferred tax liabilities are recognized based on temporary differences between the financial reporting and tax basis of assets and liabilities using statutory rates.

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Basic and diluted net loss per share is determined by dividing net loss attributable to common stockholders by the weighted-average common shares outstanding during the period.

Net loss attributable to common stockholders for the nine months ended September 30, 2020 did not equal net loss due to the accretion of the beneficial conversion feature of Series B Preferred Stock in the amount of $7.9 million.

In 2020, the net loss applicable to common stockholders did not equal net loss due to the accretion of the beneficial conversion feature of Series B Preferred Stock in the amount of $7.9 million.

The beneficial conversion feature was initially recorded as a discount on the Series B Preferred Stock with a corresponding amount recorded to additional paid-in capital.

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Three Months Ended

September 30,

Nine Months Ended

September 30,

Series Seed Preferred Stock

Series A Preferred Stock

Series B Preferred Stock

Options to purchase common stock

Shares reserved for future issuance under the ESPP

Related Party Transactions

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Lundbeckfond Invest A/S also purchased 187,500 shares of common stock in the IPO.

This reflects a 7.4% and a 9.3% ownership interest on a fully diluted basis as of September 30, 2020 and December 31, 2019, respectively.

This reflects a 7.2% and a 7.4% ownership interest on a fully diluted basis as of March 31, 2021 and December 31, 2020, respectively.

Mette Kirstine Agger, a member of our board of directors, is a Managing Partner at Lundbeckfonden Ventures, which is an affiliate of Lundbeckfond Invest A/S.

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All shares of preferred stock converted into shares of common stock upon closing of the IPO.

This reflects a 2.7% and a 4.2% ownership interest on a fully diluted basis as of September 30, 2020 and December 31, 2019, respectively.

This reflects a 2.6% and a 2.7% ownership interest on a fully diluted basis as of March 31, 2021, and December 31, 2020, respectively.

Lundbeck did not participate in the Series B Preferred Stock financing.

To date, pursuant to the Lundbeck Agreement , the Company has made cash payments to Lundbeck of $ 1.8 million consisting of an upfront payment and ongoing milestone payments which are recorded as research and development expense.

Cydan Development, Inc.

In January 2016, the Company entered into a Business Services Agreement with Cydan Development, Inc., or Cydan, pursuant to which Cydan provided office space, personnel assistance, and other business services to the Company on an as-needed basis.

At the time the agreement was signed, Cydan was considered a related party because Cydan was a holder of more than 5% of the Company’s capital stock and Dr.

James McArthur was the Company’s founder, President and Chief Executive Officer, a member of the Company’s board of directors and a holder of more than 5% of the Company’s capital stock and the Chief Scientific Officer of Cydan.

As of September 30, 2020, Cydan is no longer considered a related party.

The Company paid Cydan less than $0.1 million during the three and nine months ended September 30, 2019 related to the Business Services Agreement, all of which was recorded as research and development expense.

The Company agreed with Cydan to terminate the Business Services Agreement and all related services rendered by Cydan to the Company effective as of August 17, 2019.

Accordingly, there were no amounts due to Cydan as of September 30, 2020 and December 31, 2019.

Benefit Plans

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Matching contributions to the plan may be made at the discretion of the Board.

The Company has made no contributions to the plan to date.

The Company has made $0.1 million of contributions to the plan to date.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements